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Pretax cost of first issue Aftertax cost of first issue Pretax cost of second issue Aftertax cost of second issue Aftertax cost of debt Jiminy's Cricket Farm issued a 30-year, 7 percent semiannual bond 3 years ago. The bond currently sells for 93 percent of its face value. The book value of the debt issue is $85 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 12 years left to maturity; the book value of this issue is $35 million, and the bonds sell for 59 percent of par. What is the company's total book value of debt? The total market value? What is your best estimate of the aftertax cost of debt? The company's tax rate is 22 percent. Settlement Maturity Coupon rate Price (% of par) Redemption value (% of par) Payments per year Book value of debt issue 01/01/00 01/01/27 7% 93 100 2 $ 85,000,000 Second bond issue: Settlement date Maturity date Annual coupon rate Coupons per year 01/01/00 01/01/12 0% 2 Bond price (% of par) 59 Redemption value (% of par) 100 Book value debt issue $ 35,000,000 Tax rate 22% Book value of debt Market value of first bond Market value of second bond Market value of debt Market value weight of first bond Market value weight of second bond Pretax cost of first issue Aftertax cost of first issue Pretax cost of second issue

Pretax cost of first issue Aftertax cost of first issue Pretax cost of second issue Aftertax cost of second issue Aftertax cost of debt Jiminy's Cricket Farm issued a 30-year, 7 percent semiannual bond 3 years ago. The bond currently sells for 93 percent of its face value. The book value of the debt issue is $85 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 12 years left to maturity; the book value of this issue is $35 million, and the bonds sell for 59 percent of par. What is the company's total book value of debt? The total market value? What is your best estimate of the aftertax cost of debt? The company's tax rate is 22 percent. Settlement Maturity Coupon rate Price (% of par) Redemption value (% of par) Payments per year Book value of debt issue 01/01/00 01/01/27 7% 93 100 2 $ 85,000,000 Second bond issue: Settlement date Maturity date Annual coupon rate Coupons per year 01/01/00 01/01/12 0% 2 Bond price (% of par) 59 Redemption value (% of par) 100 Book value debt issue $ 35,000,000 Tax rate 22% Book value of debt Market value of first bond Market value of second bond Market value of debt Market value weight of first bond Market value weight of second bond Pretax cost of first issue Aftertax cost of first issue Pretax cost of second issue

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 17P
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Pretax cost of first issue Aftertax cost of first issue Pretax cost of second issue Aftertax cost of second issue Aftertax cost of debt
Transcribed Image Text:Pretax cost of first issue Aftertax cost of first issue Pretax cost of second issue Aftertax cost of second issue Aftertax cost of debt
Jiminy's Cricket Farm issued a 30-year, 7 percent semiannual bond 3 years ago. The bond currently sells for 93 percent of its face value. The book value of the debt issue is $85 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 12 years left to maturity; the book value of this issue is $35 million, and the bonds sell for 59 percent of par. What is the company's total book value of debt? The total market value? What is your best estimate of the aftertax cost of debt? The company's tax rate is 22 percent. Settlement Maturity Coupon rate Price (% of par) Redemption value (% of par) Payments per year Book value of debt issue 01/01/00 01/01/27 7% 93 100 2 $ 85,000,000 Second bond issue: Settlement date Maturity date Annual coupon rate Coupons per year 01/01/00 01/01/12 0% 2 Bond price (% of par) 59 Redemption value (% of par) 100 Book value debt issue $ 35,000,000 Tax rate 22% Book value of debt Market value of first bond Market value of second bond Market value of debt Market value weight of first bond Market value weight of second bond Pretax cost of first issue Aftertax cost of first issue Pretax cost of second issue
Transcribed Image Text:Jiminy's Cricket Farm issued a 30-year, 7 percent semiannual bond 3 years ago. The bond currently sells for 93 percent of its face value. The book value of the debt issue is $85 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 12 years left to maturity; the book value of this issue is $35 million, and the bonds sell for 59 percent of par. What is the company's total book value of debt? The total market value? What is your best estimate of the aftertax cost of debt? The company's tax rate is 22 percent. Settlement Maturity Coupon rate Price (% of par) Redemption value (% of par) Payments per year Book value of debt issue 01/01/00 01/01/27 7% 93 100 2 $ 85,000,000 Second bond issue: Settlement date Maturity date Annual coupon rate Coupons per year 01/01/00 01/01/12 0% 2 Bond price (% of par) 59 Redemption value (% of par) 100 Book value debt issue $ 35,000,000 Tax rate 22% Book value of debt Market value of first bond Market value of second bond Market value of debt Market value weight of first bond Market value weight of second bond Pretax cost of first issue Aftertax cost of first issue Pretax cost of second issue
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